Sujain Thomas, Negosentro | Have you ever wondered how the top traders and investors make their winning decisions time after time without slipping? Trading is risky, and the risk of losing money is quite real. Market regulars don’t always make great money off trades. Sometimes, they make bad buying or selling decisions. What most newbie traders ignore is the way the professionals do not dwell on their losses and move on. Each failure is a learning experience, and it can be difficult for the amateur traders and learners to find a way to move past their failures learn from them and not become bogged down by their losses.
This makes a lot of us wonder if we could somehow automate the entire trading process or simply replace our brains with a supercomputer that could do all the calculations for us. However, that is quite impossible. No matter what conspiracy theorists try to tell you about CIA experiments, we have not come across human beings with microchips and microprocessors embedded in their head. As per the expert traders on Etoro,the all-time best traders are simply people with retrained brains that can separate emotional responses from logic and reasoning.
The emotional part of the brain
Have you ever felt so angry that you could not form sentences any longer and you ended up just yelling? That is a response directly from the part of your brain that processes emotions and emotional responses. It is like screaming your lungs out on a rollercoaster ride. This is a part of the brain that is related to the parts that process hunger, thirst, pain, love and other primordial needs. When you think about it, almost all mammals have this part of the brain. This is the oldest part of the brain that processes all the emotions as well. This is the part of the brain that takes over when there are 5 minutes left for a test, and you have five more questions to answer.
The reflexive part of the brain is the one that tells us to pull our hands back immediately after touching a hot object. That kind of response is great for survival, but not so great for trading. When you see a market chart, and your heart starts pounding, your forehead starts sweating, and your hands start twitching, that is exactly what time you should NOT make a trading decision. That is the last investment your trading portfolio needs right now.
The problem is – for most people, the reflexive part of their brains responds ahead of the analytical part. They end up saying something or making decisions as per the directions of their reflexive thought process even before the reflective part of the brain can chime in. For a trader, that can mean obvious annihilation!
The rational part of the brain
This is like the alter ego of the reflexive brain. The prefrontal cortex usually comprises the reflective part of your brain. This part is mainly responsible for logic, reasoning, analysis, and cognition. Almost all kinds of analytical decision-making processes go on in the prefrontal cortex of a human brain. Therefore, the top investors and traders often rely on their reflective brain, rather than their reflexive brain to make the investing decisions.
This is also the part of the noggin that pulls out memories from the central part of the brain and arranges the scraps of information from the past and the present to paint a complete picture. The neurons are a complex work of art that enables you to form sound theories about the present goings on and estimate the probabilities of future events. If you are looking forward towards solving more complex problems like “Will my current choice of investment yield satisfactory profits by the end of this year?” or “Should I diversify my trading portfolio today?” then you should be relying on decisions that come from data processing in the prefrontal cortex.
Conversations between the reflexive brain and reflective brain
Very simply speaking, trading decisions and investments have very little space for emotions. So when you get a “gut feeling” or a hunch, always stop for a moment and think if that is the older part of the brain trying to incite anxiety or if it is the reflective part of the brain trying to help you process some information you may have gathered in your archiving brain. Using just the reflexive part of your brain and basing your buying decisions on just emotions will turn every trading event into a gambling session.
Now, we say that in your best possible interest. The idea is not to eliminate the reflexive thought processes, but to know when to rely on intuition and when to make decisions based on hardcore facts.
Learning how to not over-analyze
Nonetheless, there have been several instances of traders suffering from analysis-paralysis from over-analyzing the market data. If such an event arises, you need to take a step back, breathe and revisit the data that brought you there in the first place. Reflecting too much on a single trade can be quite dangerous, especially when you are still in the learning phase. To get out of this mess, you simply need to stop thinking about shortcuts to success. Simply stop thinking about short-term temptations. You need to think beyond the fast money fallacy and move on to real long-term investment decisions.
Use a trading checklist. This will help you track the ongoing trades. Always think thoroughly, double-check your facts and figures before you buy or sell. Most importantly, once you complete the trade, take the day off, log out of your trading accounts and step away from your PC. Taking short breaks and relaxing in the open air does have a stimulating effect on the pre-frontal cortex and its decision-making process.